Glaxo Said to Send Executives to China in Probe Response

By Makiko Kitamura and Albertina Torsoli -
Jul 19, 2013

GlaxoSmithKline Plc (GSK) sent its head of
emerging markets to China to oversee the drugmaker’s response to
a government probe of suspected economic crimes, according to
person with knowledge of the matter.

Abbas Hussain, the London-based company’s president of
Europe, Japan, emerging markets and Asia Pacific, was dispatched
by Chief Executive Officer Andrew Witty, said the person, who
asked not to be named because he wasn’t authorized to speak
about the matter. The global head of internal audit and deputy
chief counsel for China are with Hussain, the person said.

Sending a senior executive such as Hussain shows Glaxo
wants to be seen as a company that’s doing what’s expected of
it, said Fabian Wenner, a health-care analyst with Kepler
Capital Markets in Zurich. Four senior executives have been
detained in the investigation involving 3 billion yuan ($489
million) of spurious travel and meeting expenses, and trade in
sexual favors, China’s Public Security Ministry said July 15.

“Investors are increasingly asking questions about this,”
Wenner said yesterday in a phone interview. “They want more
visibility.”

Hussain, 48, joined Glaxo in 2008 after 20 years at Eli
Lilly & Co. The Indian-born manager is one of the 15 people on
the Glaxo Corporate Executive Team that, along with Witty,
manages the business.

Shares Decline

Glaxo fell 0.7 percent to 1,715 pence in London yesterday.
Witty, who hasn’t spoken publicly about the allegations, will
hold briefings on July 24 with reporters and analysts after the
company announces second-quarter earnings.

Glaxo said in June it had found “no evidence of corruption
or bribery in our China business” after a four-month
investigation. The internal probe came in response to a whistle-blower’s allegation that sales people in China were involved in
widespread bribery of doctors to prescribe medication.

Chinese police said June 28 that senior Glaxo executives in
the country were suspected of economic crimes, and on July 11
China’s Ministry of Public Security said some managers had
admitted to corruption. “These allegations are shameful and we
regret this has occurred,” Glaxo said in a July 15 statement.

Other Drugmakers

Other foreign companies may also be involved, Gao Feng,
head of the economic crimes investigations unit of China’s
Public Security Ministry, told reporters at a July 15 briefing.

While authorities haven’t named any other companies, UCB SA (UCB)
said yesterday its Chinese operations were visited by local
authorities.

All drugmakers are receiving visits, and UCB has “nothing
to report,” France Nivelle, a spokeswoman for the Brussels-based company, said in an interview. “It’s business as usual,”
Nivelle said. UCB fell 2.3 percent to 42.15 euros.

Merck & Co. (MRK), the second-biggest U.S. drugmaker, also said
it hasn’t been contacted by the Ministry of Public Security.
Roche Holding AG (ROG) said it’s not aware of any anti-corruption
probes in China against the Basel, Switzerland-based company.

No Contact

Novo Nordisk A/S (NOVOB) hasn’t been contacted by Chinese
authorities and “is, to our knowledge, not included in the
investigation,” a spokesman for the Bagsvaerd, Denmark-based
company said yesterday.

AstraZeneca Plc (AZN), the biggest U.K. drugmaker after Glaxo,
said in its 2012 annual report that it is investigating
indications of inappropriate conduct in countries that include
China. The company has no update yet, Esra Erkal-Paler, a
spokeswoman, said in an e-mail.

Mark Reilly, who has led Glaxo’s business in China since
2009, left the country June 27 after his colleagues were
detained. Glaxo’s finance chief in China, Steve Nechelput, has
been unable to leave the country since the end of June.

Reilly returned to the U.K. on a routine, planned business
trip and has been working from Glaxo’s headquarters on the
response to the probe, a person with knowledge of the matter
said July 15.

Efforts to clean up the nation’s $350 billion health-care
industry have gained prominence since police said last month
they were investigating Glaxo. On July 17, the China Food and
Drug Administration said it will “severely crack down” on fake
medications, forged documents and bribery.